Canada eyes more rate cuts as US woes hit home

24 January 2008 18:29  [Source: ICIS news]

TORONTO (ICIS news)--Canada’s central bank expects to continue cutting interest rates in the near term to help offset the impacts on Canada of the worsening US housing and credit crisis, the bank said on Thursday.

 

The cuts would come on top of 25-point reductions in January and December, lowering the bank’s overnight rate to 4%.

 

“Further monetary stimulus is likely to be required in the near term,” said outgoing central bank governor David Dodge in a monetary policy update.

 

He pointed in particular to weakness in the US economy that would lead to additional downward pressure on Canada's export growth.

 

Declining activity in the US housing sector suggested a deeper and more prolonged adjustment in US residential investment and a reduction in home equity values, with a further tightening of credit conditions, the bank said in its report.

 

“The US economy in 2008 is now significantly weaker than it was in October. Growth is expected to be particularly weak in the first half of the year before recovering later in 2008 and 2009,” it said.

 

Overall, the bank projected Canada’s economy to expand by 1.8% in 2008 and 2.8% in 2009.

 

In a separate report on Thursday, Export Development Canada (EDC) - a federal export finance agency - said its latest survey showed that confidence among exporters fell sharply as the impact of the higher Canadian dollar and the weakness in the US economy were hitting home.

 

“Only six months ago, even with a high dollar and significant signs of a US downturn looming, exporter confidence actually increased. What we’re seeing today is a very sudden and steep decline in the persistent optimism of two previous surveys,” said Peter Hall, EDC vice president of for economics.

 

The EDC’s trade confidence index dropped to 67.4% in January, from 72.9% in June 2007, its lowest level since 2000.

 

Regionally, resource and oil-rich Western Canada posted the most optimistic score of 70% (down from 74% since June 2007), followed by Quebec at 68% (down from 73%) and Ontario at 66% (down from 72%).

 

The survey showed that 92% of exporters believed that the Canadian dollar played an important role in their ability to compete, EDC said.

 

The majority of Canadian exporters priced their goods and services in US dollars, and for many, the rise in the Canadian dollar cut into their profit margins, it said.

 

The US market is critical for Canada's chemicals makers. Two thirds of the country's chemical production is exported and the US accounts for 80% of those exports, according to Canadian Chemical Producers Association.

By: Stefan Baumgarten
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly